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Argentine navy, continued

November 13, 2012

As you may recall, an Argentine ship was detained in Ghana in early October at the request of a hedge fund looking for payment on Argentine government debt. Argentina responded by sackingthe people involved and issuing melodramatic press releases about “vulture funds” and “unscrupulous financiers.”

In the meantime, various international courts are trying to decide who gets the ship. Sam Morrow sends this update, in which Argentina threatens further legal action. Beyond the entertainment value, the issue is an interesting one: What rights do creditors of sovereign nations have in collecting unpaid debts? The best piece I know (Section 2 is well worth reading) includes this summary:

[C]hanges in the legal environment since the late 1970s have made it much easier for holdout creditors to obtain judgment claims. In addition, there are some examples — most famously, CIBC/Brazil, Elliott/Panama, and Elliott/Peru — in which holdouts have been able to enforce those claims, or settle at substantially better terms than the average creditor. These settlements seem to have occurred either because holdouts were able to credibly threaten to attach sovereign assets or interfere with international transactions.

Yup, that seems to be the case here. What I don’t understand is what things can be seized. Is any asset of a foreign government fair game? Or is there immunity for some things? If anyone knows how this works, please let me know.

Update (Nov 14): An interesting link from Glenn Okun on terms of sovereign debt contracts. Also this one. It seems that to understand the Argentine case, we need to know more about the terms under which the bonds were issued. Some bonds include explicit waivers of sovereign immunity that give creditors greater ability to collect on debts, and perhaps that’s the case here.

The Argentine bonds in question contained a waiver of sovereign immunity from suit and from attachment. The wording was: “To the extent that the Republic or any of its revenues, assets or properties shall be entitled, in any jurisdiction … to any immunity from suit … [or] from execution of a judgment … the Republic has … irrevocably waived such immunity to the fullest extent permitted by the laws of such jurisdiction…”

The key clause here is the “fullest extent permitted”. NY courts have already refused to attach the Libertad and foreign exchange reserves held at the NY Fed because there is a US statute that prohibits seizure of foreign exchange reserves and military assets.

The court in Ghana went a different way, arguing, I think, that the law on this kind of thing is not settled. However, Ghana is a signee of the “Law of the Sea” convention and that seems to prohibit the seizure of military or diplomatic vessels.

More along these lines in his paper. It sounds like they’ll get the ship back, but it’s been fun while it lasted.